There were four reports released last week with new data that will impact 3rd quarter growth in GDP when the 2nd estimate is released on November 24. Those are the September report on Wholesale Trade, Sales and Inventories (pdf), the composite Manufacturing and Trade Inventories and Sales report for September (pdf), the Advance Retail Sales Report for October (pdf) , and the Import and Export Price Indexes for October. Today we’ll take a brief look at those reports and what those impacts might be.
0.5% Rise in September Wholesale Inventories Will Boost 3rd quarter GDP
Both wholesale sales and wholesale inventories increased more than was expected in September, with the higher inventories implying an upward revision to 3rd quarter GDP. The September report on Wholesale Trade, Sales and Inventories (pdf) from the Census Bureau estimated that the seasonally adjusted value of wholesale sales was at $448.0 billion, 0.5 percent (+/-0.7%)* higher than the revised August level, but 3.9 percent (+/-1.2%) lower than wholesale sales of a year earlier. The August preliminary estimate was revised upward $0.5 billion or 0.1% to $445.9 billion but was still 0.9% below July's level. September wholesale sales of durable goods rose 0.7 percent (+/-1.1%)* from last month but are still down 0.8 percent (+/-1.8%)* from a year earlier, with wholesale sales of computer and computer peripheral equipment and software 3.8% higher than August while wholesale sales of furniture fell 2.7%. Wholesale sales of nondurable goods were up 0.3 percent (+/-0.9%)* from August, but were down 6.7 percent (+/-1.6%) from last September, with wholesale sales of farm products up 3.6% on higher prices while wholesale sales of petroleum and petroleum products fell 4.6% on lower prices. As an intermediate activity, wholesale sales are not included in GDP except insofar as they are a trade service, since the traded goods themselves do not represent an increase in the output of the goods sold.
However, the monthly change in private inventories is a major factor in GDP, as additional goods on the shelf represent goods that were produced but not sold. This September report estimated that wholesale inventories were valued at $588.1 billion at month end, an increase of 0.5 percent (+/-0.4%)* from the revised August level and 4.7 percent (+/-1.6%) higher September a year ago, with the August preliminary estimate revised upward $1.3 billion or more than 0.2 percent. Inventories of durable goods were down 0.4 percent (+/-0.4%)* from August but were up 2.8 percent (+/-1.9%) from a year earlier, with inventories of metals and minerals down 2.2% while inventories furniture were up 1.3%. Meanwhile, the value of wholesale inventories of nondurable goods was up 1.9 percent (+/-0.5%) from August and was up 7.7 percent (+/-2.3%) from last September, as the value of inventories of raw farm products was 6.7% higher while inventories of chemicals and allied products were down 1.6%.
When computing 3rd quarter GDP two weeks ago, the BEA assumed a decrease in wholesale inventories and used the August inventory figures that had been reported at that time. August inventory figures have now been revised up by $1.3 billion, and since September producer prices for finished goods were down 0.5%, that means real wholesale inventories for the month were up by around 1.0% over August. Together, that means that 3rd quarter inventories were at least $8.4 billion higher in inflation adjusted dollars than the BEA estimated in their advance estimate of 3rd quarter GDP. On an annualized basis, that would boost the change in the inventory contribution to the change in GDP by at least $34 billion dollars, or enough to add at a minimum 0.21 percentage points to the next estimate of 3rd quarter GDP growth.
Revisions to Retail Sales Will Lower 3rd Quarter GDP
Robert covered the October advance retail sales report in a an earlier post, so you can get the details on that there. Seasonally adjusted retail sales rose 0.1% in October while September sales were revised more than 0.1% lower and August's sales were also revised a bit lower, resulting in an advance sales figure nearly 0.1% lower than what was reported last month. The Advance Retail Sales Report for October (pdf) from the Census Bureau estimated that our seasonally adjusted retail and food services sales totaled $447.3 billion, which was an increase of 0.1 percent (±0.5%) from September's revised sales of $447.0 billion and 1.7 percent (±0.7%) above the sales of October of last year.. September's seasonally adjusted sales were revised from the $447.7 billion first reported to $447.0 billion, while August's sales, which were revised down to $447.2 billion from the originally reported $447.7 billion last month, were revised down again, to $447.1 billion with this report. Wwhile we can't estimate the impact of these October sales on 4th quarter GDP until the consumer prices indices are released later this week, the decrease of roughly $0.8 billion in sales for August and September should subtract nearly $3.4 billion from the growth of annualized personal consumption expenditures for goods when the 2nd estimate of third quarter GDP is release at the end of the month, which would hence subtract 0.02 percentage points from 3rd quarter GDP growth.
September Business Inventories, 3rd Quarter GDP Component, Increased More than Estimated
Following the release of the October retail sales report, Census released the composite Manufacturing and Trade Inventories and Sales report for September (pdf), which incorporates the revised September retail data and gives us a complete picture of the business contribution to the economy for that month. According to the Census Bureau, total manufacturer's and trade sales were estimated to be valued at a seasonally adjusted $1,320.3 billion in September, statistically unchanged (±0.2%) from August revised sales, and down 2.8 percent (±0.4%) from September a year earlier. Note that total August sales were revised down by less than 0.1%, from $1,320.5 billion to $1,319,921 million. Manufacturer's sales fell by 0.4% from August to $477,314 million, retail trade sales, which exclude restaurant & bar sales from the revised September retail sales reported earlier, were statistically unchanged at $394,950 million, and wholesale sales rose by 0.5% to $448,004 million...
Meanwhile, total manufacturer's and trade inventories, a major component of GDP, were estimated to be at a seasonally adjusted $1,817.5 billion at the end of September, 0.3 percent (±0.1%) higher than in August and 2.5 percent (±0.5%) higher than in September a year earlier. Seasonally adjusted inventories of manufacturers were estimated to be valued at $645,129 million, 0.4% less than in August, inventories of retailers were valued at $584,283 million, 0.8% greater than August, and inventories of wholesalers were estimated to be valued at $588,120 million at the end of September, up 0.5% from August.
In the advance estimate of third quarter GDP, the BEA assumed a decrease in nondurable manufacturing inventories, and in wholesale and retail inventories, so they were wrong on two out of the three. When we looked at the data on factory inventories last week, we judged that a negative revision to durable inventories would offset the positive change in non-durable inventories, and hence September factory inventories would have a negligible impact on 3rd quarter GDP revisions. Earlier we looked at the surprise increase in wholesale inventories and judged it would add at least 21 basis points to 3rd quarter GDP growth. In evaluating the impact of the 0.8% increase in retail inventories, what the BEA would do would be to adjust the value each different kind of retail inventory for the wholesale price change in each type of good, quite a complex computation. However, we can get a rough estimate on the aggregate by using the producer price index for finished goods as a deflator. For September, wholesale prices for finished goods were down 1.2%, but that was driven by a 5.9% decrease in energy goods, comparatively little of which are inventoried at retail. Meanwhile, prices for finished consumer goods less foods and energy were down 0.2%, while prices for finished consumer foods, about 12% of retail inventories, were down 1.1%. Thus we could approximate a deflator of roughly minus 0.3% to use to adjust aggregate retail inventories, which would indicate real retail inventories grew at about a 1.1% rate in September. That would mean that real September inventories were at least $6.4 billion higher than had been estimated by the BEA, which would make for another upward revision of roughly $26 billion at an annual rate to real third quarter inventory growth, which in turn would add a minimum of 0.16 percentage percentage points to the next estimate of 3rd quarter GDP.
Revisions to the Import-Export Price Index will Lower 3rd Quarter GDP
We also want to take a quick look at the Import and Export Price Indexes for October, in which the BLS reported the price index for imports fell 0.5% after falling a revised 0.6% in September, while the price index for exports fell 0.2%, also after falling 0.6% in September. Import prices for fuels were down 2.0% while other imports averaged 0.3% lower, while export prices for agricultural products fell 0.1% while prices for non-agricultural exports averaged 0.3% lower. October figures in this report will be used to adjust October trade figures for price changes when our international trade report for that month is released the first week in December. Our interest in this report today is in the revisions to import and export prices for September, which will impact the real figures for trade in that month and thereby result in revisions to 3rd quarter GDP...
A month ago, the BLS reported that September import prices were 0.1% lower, while September export prices were reported to be 0.7% lower. With this report, September import prices were revised to 0.6% lower, while September export prices were revised to indicate they were 0.6% lower. Since the BEA used the former figures in their advance estimate, that means our real imports, after adjusting the dollar value of them for those changes in prices, were 0.5% higher than was reported in the GDP report, while our real exports were actually 0.1% lower. The September trade report indicates goods imports of $187.6 billion, and goods exports of $127.3 billion, so thus real imports for September were approximately $0.94 billion higher than those included in the GDP report, while real exports were roughly $0.13 billion lower. Annualized, those changes would subtract around $4.4 billion from real net exports in the 3rd quarter, which in turn would subtract around 0.03 percentage points from 3rd quarter GDP. Hence, that would lower the upward revision to GDP from September trade which we discussed previously to an 8 basis point addition to 3rd quarter GDP..